THE Securities and Exchange Commission (SEC) has approved amendments to the stock market’s regulatory framework, prohibiting stockbrokers from engaging in any business relationship based on guaranteed return to the client.
A circular obtained by The Nation at the weekend showed that the amendments were approved by the Commission last week. The amendments prohibit any guaranteed business by dealers at the Nigerian Stock Exchange (NSE) and imposes sanctions on defaulters.
According to the amendments, dealing members are not expected to enter into any relationship with a client based on a guaranteed return to the client, and should state in communications to their clients that guaranteed returns on investments are prohibited.
Also, dealing members should not guarantee a customer against loss in any account or in any securities transaction executed by the dealing member for such customer, or previously agreed with the customer on a profit margin.
The amendments empower the NSE to sanctions violators, including suspension from trading on the floor of the Exchange for not less than 10 business days.
Also, where a dealing member offers a guaranteed investment product to its clients on investment in securities, the fine shall not be less than N5 million and a further penalty not less than N20,000 daily from when the firm is sanctioned by the Exchange until the firm completes the payment of the fine.
The NSE could also suspend the authorised clerk for a period to be determined under the disciplinary process of the Exchange, and or revoke the licence of the Authorised Clerk involved in the deal.
Where the compliance officer of the dealing member has knowledge of a violation of this rule but fails to report to the Exchange, such a compliance officer shall be blacklisted.
The amendments also empower the Exchange to expel any dealing member from membership of the Exchange and dealing licence of such a member.
The Nation had reported that the blanket ban on any form of guaranteed returns by stockbroking firms was part of efforts to clearly outline the risk horizon of quoted securities and plug a loophole that has lured many unsuspecting investors into bogus investment schemes.
Justifying the imposition of stiff penalties, the Exchange had noted that it has observed an increase in the violation of the ban on guaranteed returns, which has culminated in significant loss of investment and loss of investor confidence in the capital market.
The stock market had last year reeled under a scandal involving a major stockbroking firm, Partnership Securities Limited (PSL), which lured investors into unapproved guaranteed investment scheme, which led to estimated loss of about N4.8 billion by some 300 investors.
Some 300 investors had alleged that they were swindled of more than N4.8 billion in investment schemes promoted by Partnership Securities Limited. They alleged that they were approached to surrender their shares for management with a promise to provide a guaranteed return periodically. Shares worth more than N4.8 billion were misappropriated through this scheme.